What happens if the member of a SSAS dies?
SSAS death benefits explained
A comprehensive guide to Pensions and Investments for Investing in Property
Family members (and other dependants) can access the funds in a Small Self Administered Scheme (SSAS) if the SSAS member dies, but there are restrictions. It’s possible for a lump sum to be paid to a nominated beneficiary completely tax free, making an SSAS an excellent inheritance planning tool — if used properly.
However, this depends on specific circumstances, including whether or not the member has started drawing funds from the SSAS and how old the SSAS member was when they died.
Family members will be able to access a SSAS if a member dies before drawing the funds. The simplest option is to pay a lump sum to a person nominated in writing. Lump sums are typically free from all kinds of tax, including inheritance tax, income tax and pension tax. There is however, an exception: If contributions are made to the SSAS in the two years prior to death, as an attempt to reduce the SSAS member’s estate, this money may be liable for inheritance tax.
Alternatively, the amount can be paid as pension income to a dependant. In this case, income tax must be paid on the amount and the recipient must be a dependant.
If the SSAS member dies before drawing funds and was over 75, the benefits are paid out as if from a drawdown fund.
A lump sum paid out from a drawdown fund is taxed at 55%. You can pay anyone nominated in writing from a drawdown fund.
Money from a drawdown fund may be paid as income pension to a dependant as normal, which would be subject to income tax.
If you have no surviving dependants, the money from a drawdown fund may be paid to a nominated charity, without any tax deductions.
The Lifetime Allowance is a limit on the amount that can be taken from a pension scheme, either as a lump sum or as retirement income, and can be paid without triggering an extra tax charge. The amount drawn from a SSAS — or paid as a lump sum to a beneficiary — is tested against the lifetime allowance. As of April 2019, the lifetime allowance in the UK is £1,055,000.
Each scheme will have a different arrangement in place in the event a member of the SSAS dies while drawing their pension. It’s possible to arrange a lump sum, a continuing pension income for a fixed time, or a dependant’s pension.
If a lump sum payment is arranged, this will be taxed at 55% and is limited to 20 times the amount of the original pension (minus the amount already paid to the SSAS member).
A dependant’s pension can only be paid to someone who is a dependant of the SSAS member who died. A dependant may be a spouse, civil partner, common-law partner, a child aged 23 or under, anyone financially dependent on the SSAS member, or anyone who is dependent on the member due to physical or mental impairment.
A dependant’s pension is not tested against the Lifetime Allowance, but it is taxed at the appropriate rate of income tax to the recipient. A dependant can draw their pension in a number of different ways, including a capped drawdown, a flexible drawdown (only if they qualify for the scheme in their own right), a scheme pension, or a lifetime annuity.
A lifetime annuity is a product that you can buy with your pension fund, which guarantees an income for life. If you’re a member of a SSAS and you’re drawing funds, you can use these funds to purchase an annuity. However, it’s vital you carefully check the terms of the annuity. When the recipient of an annuity dies, a lump sum may be paid to a dependant or there might be a minimum term of payments from the annuity to a dependant.
Need specific pension investment advice?
Read our SSAS Pension guides:
- SSAS vs SIPP pensions
- What is a Self-Administered Pension?
- How To Set Up A SSAS pension
- What kind of regulations and protections are there for SSAS?
- What Can an SSAS Pension Invest In?
- What are SSAS death benefits
- HMRC Rules
- SSAS Pensions
- How to find the best SSAS provider
- Can a SSAS buy residential property
- A guide to SSAS Pension scheme Loans
Still unsure about something? Please don’t hesitate to contact us about enquiries relating to pensions and investments in property.
What our customers say...
Simon and Teresa have helped me to gain control of my pension and now I am able to invest it in property through a fund with high fixed returns. I will also be able to use it on my own purchases / projects, which gives me much more cash access... Read moreMartin Littleboy9/19/2019
We had a number of workplace and final salary pensions, dotted all over the place and decided to pull them all into one SSAS. Laura and the team were excellent in explaining what to expect and keeping us advised every step of the way, in fact as part of... Read moreRosemary Wooding7/18/2019
Genuine professional people delivering top notch quality customer service accompanied with the all important experience and in-depth knowledge of this business field.
Many thanks in particular to Gareth and Teresa for their unswerving support advice and guidance over these past few years since I took up the challenge of looking after... Read moreNick Clement3/06/2019
The Landlord’s Pension is an expert in this niche sector of financial planning and have been helping clients to invest in property since 2004